Good news for anyone who is a first time home buyer and can qualify for the new home buyer tax credit -- HUD has now issued official guidance that will allow people to "monetize" the tax credit to use for closing costs or a down payment once the 3.5% has been paid.
Many people who want to "monetize" the tax credit ask the question of "can I use the tax credit for my down payment?" and the answer to that is officially "yes" -- but not until they have put the 3.5% down as required for an FHA loan.
Another popular question that people have about monetizing the tax credit is "how much does it cost?" HUD has also done a nice job addressing the topic of how much it can cost to monetize the tax credit.
According to the Official Mortgagee Letter from HUD (2009-15):
“Any costs attendant to the purchase of the tax credit are to be nominal and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the homebuyer. In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive. (Example: $6000 to be refunded, with all fees and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)”
HUD also indicates in the Mortgagee Letter that they will be tracking and reporting what costs were for each person who monetizes the tax credit because the lender must report all of the FHA case file documentation and tax credit monetization data via FHA Connection.
Should an organization decide not to follow the official guidance, FHA will do any or all of the following: report to the Mortgagee Review Board, a referral to the Federal Trade Commission, or referral to the appropriate State Attorney General office, as needed.
One of the biggest problems right now is that many lenders are still trying to figure out how the details of the tax credit monetization plan will work. What the mechanics of the tax credit monetization will be, etc.
To my knowledge -- as of today, many lenders are not offering this as an option -- they are still trying to figure out how it will work exactly in practice. As they start to roll out the programs, I will be sure to let you know!